Agencies play it safe with contract types

The federal government pulled away from awarding risky time-and-materials contracts and turned to cost-reimbursement contracts more often in fiscal 2009 compared with 2010, according to a new report.

In 2009, agencies awarded $31.31 billion in time-and-materials contracts, or 6 percent of the government’s $554.5 billion in spending. In 2010, they awarded $28.41 billion, or 5 percent of the $535.8 billion in federal spending, according to a report from the Office of Federal Procurement Policy (OFPP), which was released July 11.

OFPP Administrator Dan Gordon said the increase came as agencies decreased their use of time-and-materials contracts, a point driven home by the Obama administration. Agencies still were caught in situations where a contract’s requirements had enough uncertainty to prevent officials from negotiating a contract with a fixed price.

“Some increase in spending through cost-reimbursement contracting was expected,” he wrote in the report.

A cost-reimbursement contract holds less risk for the government than the time-and-materials contract, Gordon wrote.

Under cost-reimbursement contracts, companies are reimbursed based on allowable costs instead of the delivery of a completed product or service.

Time-and-materials contracts provide for acquiring supplies or services on the basis of direct labor hours at a set rate. The rate includes wages, overhead, general and administrative expenses, and profit. It also includes the actual cost for materials. This has been the least favored type of contract for some time because it doesn’t give contractors an incentive to control costs.

The most favored contract type, the fixed-price contract, stayed generally steady over the past two years. According to the report’s figures, 63 percent of federal spending in 2009 was awarded through fixed-price contracts, and 62 percent in 2010.

About the Author

Matthew Weigelt is a freelance journalist who writes about acquisition and procurement.